Operations Management in the Supply Chain Case Study: Eastern Gear, Inc. Pg. 450-452 Please answer the question from this case study. And required calculation step by step. Sales process reinvention a. Better information from the get-go/order b. Realign the customer base, if big is the choice, then set a minimum order quantity i.Order qualifying, order winning, may need to do promotions if they find themselves with competitors in new business model c. Eliminate the ability to rush order items d. Change request cut-off i.Once materials enter processing if a change request is submitted the job is canceled, billed to customer; then a new job with new completion estimate and new price starts Case Study Eastern Gear, Inc. Eattern nc, in Philadelphia, Pennsylvania, is manufacturer of custom-made gears ranging in wwight from a few unces to over 50 pounds. The gears are made of different metais depending on the customer's requirements. Over the year different types of steel and tran ays have been wed Law materials See Exhibit 1 for details Faster Gear sells its products primarily to angi neering research and development laboratories or very small manufacturers As a result, the number of gears most orders is small rarely s exactly the same gear ordered more than once. The distribution of onder sizes for March 2003 is shown in E Recently, the president of Eastern Gear decided to accept a few larger orders for 100 gears or more Al though lower prices were accepted on these orders, they helped pay the overhead. It was found that the large orders caused many of the small order to wat for a long time before being processed. As a result, some deliveries of small orders were late ORDER ENTRY When a customer wishes to order a gear, the order is taken by James Lord, sales manager and marketing vice president. The customer specifies the type of gear desired by submitting a blueprint or skatch The quantity of gears required and the type of material are also specified by the customer. On occasion, the customer's engineer will call up after the order has been placed and request a change in the design, In these cases it may be necessary to stop production and wait for new raw materials or for the design to EXHIBIT 1 Raw materials Type of Material F All Other Total 2002 Usage 51000) 3.36 10 15 43 110 58 32 75 40 60 53 5522 be clarified. The customer's priets submitted with the order do not always contain the tolerances or fris requirell during machining As a result, the N contacted directly when the information ar After the order is received, one copy is sent to f production supervisor, Joe Irvine, and the sto shoy is sent to Sam Smith, the controller. Upon ceipt of the customer's order Smith places a pur chase order for the raw materials required. These materials often take from one to two weeks to anive, depending on the supplier and the type of material ordered) After receiving the customer ordet, the supervisor reviews the order and places it on file until the raw material arrives. The customer order is then routed through the shop along with the materials in the past, the production process for most gears has taken about two weeks after receipt of raw materi als Recently this production time has increased to four weeks Irvine expressed concern about the bottlenecks that appear in the production process. One week the bottleneck may be in one machine center and the next week it is in another. These bottlenecks make it difficult to get the orders out on time EXHIBIT 2 Sales March 2008 Order Size 3 4 5 306&KDLmm 10 15 20 25 30 40 50 100 200 400 200 1,000 Number of Orders 80 33 69 32 82 47 64 22 42 18 22 4 2 Total 5 Value of Orders 53.200 4,250 8.163 4,800 16,392 15,987 26871 13,172 31555 23,082 21,600 32.000 1891 12,500 14,068 9,052 15.600 20,000 $312 195 578 This case was prepared as a basis for class discussion, not to illustrate either effective or ineffective handling of a administrative situation 426 common PHYSICAL LAYOUT AND MATERIALS FLOW Eastern Gear utilizes a standard job-shop layout, as shown in Exhibit 3. Each work center has set of machines or processes. The materials flow from one work center to another, depending on the operations needed for a particular order. A typical order will take the following path. First, the raw material, a gear blank, is sent to the milling work center. Here the teeth are cut into the edge of the gear according to the customer's specifications. Next, the gear blanks are sent to the drilling work center, where one or more holes may be drilled in the gear. The gear is then sent to a grinding center, where a finish is put on the gear teeth and the surface of the gear. Next, the gear may be sent to heat-treating if this operation is re- quired by the customer. After the batch of gears is completed, they are inspected by the next available worker and shipped to the customer. in Exhibit 3, note how the machines are grouped by similar type on the shop floor. For example, all EXHIBIT 3 Layout. Milling machines Heat treating Tool crib EXHIBIT 4 Financial data. Lunch room. Finishing and grinding center Sales Manufacturing costs Materials Labor Overhead Depreciation Total Manufacturing Costs Sales expenses G & A expense Receiving dock Receiving and raw materials storage Total costs Profit before tax *All figures in thousands of dollars. Shipping and finished goods storage. Drilling 2000 560* 63 136 70 172 441 70 75 586 (26) Shipping dock drills are located together in one work center, and all milling machines are in another work center. While this layout facilitates development of worker skills and training, it results in a jumbled flow of products through the shop. There is constant interference of the orders being processed in the shop. The typical order spends 90 percent of its time waiting in line for a machine to become available. Only 10 percent of the time is ac tually spent processing the order on a machine. As a result, it takes a relatively long time (four weeks) for an order to make its way through the shop. Large and small orders are processed together. No special work flow is utilized for different order sizes. As a matter of fact, large orders are helping to keep the shop at full capacity. COMPANY BACKGROUND Business has been booming at Eastern Gear. For the first two years the company lost money, but over the last several months a small profit has been made Sales are up by 100 percent in the last quarter. See Exhibit 4 for more details. Although sales are rapidly increasing, a recent market survey has indicated that sales can be ex- panded even more in the next few years. According to the market survey, sales will be $5 million in cal- endar year 2003 if the current delivery lead time of five to six weeks is maintained. If total delivery lead time can be reduced to the former three to four weeks, sales could be expanded to $5.5 million in- stead $5 million. Because of increased delivery lead times, the com- pany has recently added an expediter, Matt Williams. Each morning Williams reviews the work in progress in the shop and selects those orders that 2001 1500 273 587 216 398 1,474 130 110 1,714 (214) t 2002 3100 522 1,063 412 422 2,419 263 297 2,979 121 First Quarter, 2003 1063 214 327 140 150 831 80 93 1,004 HIBITS Organization chart Sales Manage James Land Provident Regre Rhodes Engines Sam Bartholomew Funeman. fee Irvine Expediters Matt Williams appear to be behind schedule. Each order that is behind receives a red tag. indicating that it should i be treated on a rush basis. At the present time, about 20 percent of the orders have rush tags on them. Williams also spends his time looking for past due raw materials and lost orders as well as explain. ing late orders to customers The organization chart for the company is shown in Exhibit 5. Roger Rhodes is the president and i founder of Eastern Gear. He handles contacts with some of the large customers, arranges the financing needed by the company, and sits in on the weekly production meeting. During these meetings, sched uling problems, employee problems, and other pro duction problems are discussed. The company engineer is Sam Bartholomew His responsibilities include design of the company's products, procurement and maintenance of equip ment, and overseeing of the supervisor, Joe irvine Bartholomew also attends the weekly production meetings, and he spends about 10 hours a week on the factory floor talking with individual workers.. The company is currently experienting about a 6 percent return cate on completed orders due to poor quality. In 75 percent of the cases, the returned orders have failed to undergo one or more opera tions or the operations have been improperly done For example, in one returned order, all the gears were missing a hole. Comille Sam Smith Occasionally, the company will receive ruth arders from its customers. In this case, the order is referred t directly to Rhodes for approval. if the order a accepted, the raw materials are rush-ordered and received the next day. After receipt of the raw mate rials, the order is rushed through production in four days. This is accomplished by Fred Dirkson, a trusted employee, who hand-carries the rush orders through all operations. About 10 percent of the orders are handled on a rush basis The workforce consists of 50 employees who are highly suitied or semiskilled. The milling machine operators, for example, are highly skilled and re- quire at least two years of vocational technical training plus several months at on-the-job train- ing. Within the last quarter, 10 new employees have been added to the workforce. The employees are not unionized and good labor relations exist. The workforce is managed using a family-type- approach. Discussion Questions 1. What are the major problems being faced by Eastern Gear? 2. What action should Rhodes take to solve his problerns? 3. How can this case be related to operations strategy and process design concepts?